Share

Throughout the years-long pillorying of Goldman Sachs, the firm has stressed its unwavering fealty to its most important constituencies: its shareholders and clients. “At the end of the day, the markets’ and our clients’ appreciation of the way we do business is the only thing that matters,” CEO Lloyd Blankfein said when asked about public perception of the firm at Goldman’s 2011 annual meeting.

But that notion was tested when Greg Smith, a 33-year-old executive director at the firm’s London office, resigned on March 14 with a scolding op-ed in the New York Times accusing his colleagues of running amok with clients’ money while deriding said clients privately as “Muppets.” “It astounds me how little senior management gets a basic truth,” Smith wrote. “If clients don’t trust you they will eventually stop doing business with you.”

But does that basic truth apply to Goldman Sachs? The answer appears to be no. The firm has thrived despite mistrust it has faced since at least 1929, when it sold investors inflated shares of a company that would soon go bust in a deal that John Kenneth Galbraith would later call “large-scale corporate thimble-rigging.” More recent accusations of chicanery have bounced off the firm like spitballs off a warship. A Goldmanite turned hedge-fund manager once explained to me the mentality of the firm’s clients in these terms: Yes, dealing with Goldman is distasteful, but it’s too lucrative to give up; sure, they’d try to screw you, but if you’re smart and they respect you, the payoff could be huge.

“Business is about making money,” says Netscape founder Jim Clark. “The best companies do that and make their customers happy at the same time. Goldman is not the best company in this sense.” After the firm discouraged him from shorting the housing market — which it later did itself — Clark pulled $400 million from his Goldman Sachs wealth-management account. “They just butter their own bread and charge huge fees, these jerks,” he told Bloomberg Markets last year, complaining about another dealing with Goldman in which it offered him stakes in Facebook loaded down with surcharges. But Clark didn’t divest himself totally. “You could do worse than own their stock,” he admits.

According to Bloomberg data, Goldman won more advisory business last year than any of its peers. This despite all the unflattering episodes recited by Smith in his op-ed: “The S.E.C., Fabulous Fab, Abacus, God’s Work, Carl Levin, Vampire Squids.” Or perhaps because of them. Each headline that decries the firm’s business practices also subtly reinforces its superior ruthlessness. “I’ve seen it again and again,” said a psychotherapist friend of mine. “The nastiest, most obviously cutthroat ones always survive, even though everyone professes to hate them.” Granted, he was talking about Survivor, but the logic holds. While one may not want to be pals with the Goldman guy who talks about “ripping eyeballs out” and “getting paid,” there’s a primal appeal to having such a person overseeing your finances, in the same way it’s good to have a bastard around to push other competitors off the island.

“I have traded with Goldman for 25 years and have the utmost respect for them,” one Goldman client told me. This was a high-net-worth investor, the kind the firm might, according to Smith, describe as an “Elephant.” He added, “Lloyd Blankfein is about 50 times smarter than other CEOs.” At the close of the market on the day after Smith’s resignation, Goldman shares were already near their pre-Smith levels. The Elephant wrote a note to his account rep at the firm. “Keep up the good work,” he said.